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Costs of the Status Quo

Costs of the "Forestry" Status Quo in Massachusetts

One way of looking at the economics of forest management for a given area is in terms of potential productivity and actual productivity.  In Massachusetts, potential productivity would be up around $90 per acre per year for high-grade hardwoods and pruned pine under intensive management.  With moderate, conventional management, productivity should be about $60 per acre per year. 

Our current average productivity on unmanaged land is about $30 per acre per year.  So the minimum difference between the unmanaged status quo and management would be about $30 per acre per year.  A doubling of productivity with good management has been found in several long-term forest management studies .  The difference would be greater if management were towards the more intensive end of the range. 

If you figure a total of 3,000,000 acres of forest land in the state, and a third of that is out of consideration due to use as public lands, small wooded areas around houses, and land that is under professional management, that still leaves roughly 2,000,000 acres that could be managed, but isn't.  The lost productivity on this acreage would be at least $30 x 2,000,000 = $60,000,000 per year.

Who Benefits from the Status Quo?

So where is all that lost productivity going now?  Who is profiting from the status quo and why?  If the proximate cause of the loss in productivity is the lack of widespread and effective management, then those benefiting from the status quo would be those who are the current "default managers."  This would be loggers who harvest trees, lumber companies who arrange for the purchase and harvesting of trees, and state service foresters who administer the state Forest Cutting Practices Law.

Of course loggers and lumber companies benefit very directly from the status quo.  On the 80-90% of timber sales that are not administered by consulting foresters, they generally get to determine the conditions of sale and the tally on the trees.  One study estimated that they end up paying landowners about 20% less for timber when they "manage" the terms of sale than when consultants do.

Another result of loggers and lumber companies "managing" timber sales is generally what is known as high-grading, ie, taking the best and leaving the rest.  They don't make as much money on the low-grade trees, so they generally leave them behind, reducing the future productivity and genetic quality of the forest.  This type of "forestry" without a forester is really just logging, not forestry.  

Forestry bureaucrats also benefit very directly from the status quo.  They get paid well to play the role of "regulator" of logging practices; this puts them in between loggers and landowners and the general public.  They mediate the conflict and protect loggers from some environmentalists and town officials who would regulate them more severely.  Forestry bureaucrats also get paid to provide landowners with free information on forest management, putting them in between landowners and consulting foresters.

Some lost productivity could also be attributed to maintenance of aesthetic values on unmanaged lands.  But given the high rates of turnover in ownership of forest land--about every seven years--these aesthetic values are usually temporary.  Considering the general lack of public knowledge of the benefits of good management, there's an 85% probability that those aesthetic values will be lost the next time the forest is cut, and this most often occurs at time of sale.

Doing the Numbers

To determine the total real costs of the "forestry" status quo, you would have to take the annual value of lost productivity =  $60,000,000; add to it about a fifth of the current level of productivity (for annual losses to underscaling and underpayment) = $12,000,000; and add to that the annual cost of the forestry bureaucrats = $3,000,000.  That gets the total up to around $75,000,000 per year. 

Then these annual costs of the status quo would have to be discounted at an appropriate rate of interest for an appropriate length of time.  If the discount rate is a real rate of 4% (the net-of-inflation rate on long-term government bonds), and the term of discounting is 50 years, the total discounted cost of the status quo would be about $1.6 billion dollars, and about $806 per acre for the roughly 2,000,000 acres of unmanaged forest land in Massachusetts.

Fixing the Problem

This pattern of low productivity on high-graded and neglected forest land is found all across the country.  The potential for high productivity with good management is also found across the country.  In the past, the forestry profession was generally supportive of the application of silvicultural practices to restore lost productivity.  In recent years, however, much more drastic solutions have been proposed and implemented in some regions, particularly in the Southeast where heavy clearcutting for huge corporate chip mills has increased dramatically. 

The Chip Mill Zeitgeist is now sweeping the country and will probably come soon to southern New England.  As with any new utilization technology, there are potential benefits and costs.  Chip mills would improve markets for all the low-grade trees that are choking our forests, but the economics of high-production harvesting systems that typically feed these mills, and the difficulty of operating them selectively, generally dictate clearcutting. 

Also, in the absence of widespread professional management of our forests--as could be implemented with REAL forester licensing--we will continue to get "default management" by loggers and bureaucrats.  Therefore the combination of the "forestry" status quo and the Chip Mill Zeitgeist would be devastating for our forests.  At some point, the people and their elected representatives will have to decide what kind of future we want for our forests: more of the wasteful same old same old, or something better.

 

Estimated Status Quo "Forestry" Costs for State:

Massachusetts

 

Acres:

 

2,000,000

Discount Rate:

4%

Annual Cost/Ac (Low):

 

$20

Years:

50

Annual Cost/Ac (High):

 

$40

Base Annual Return/Ac:

30

Bureaucracy Budget:

 

$5,000,000

Loss on Base Return:

20%

 
     

Discounted

Discounted

Present to Year

 

Annual Cost

Costs per State

Costs per Acre

2,050

Low

$55,000,000

$1,181,520,154

$591

2,050

Med

$75,000,000

$1,611,163,846

$806

2,050

High

$95,000,000

$2,040,807,539

$1,020

 

Notes:  This version is just a table, not a spreadsheet.  For a copy of the spreadsheet file, send an email request to .  Please indicate your spreadsheet program and version number.  Acres are roughly estimated unmanaged (high-graded and/or neglected) area in state.  Annual $ cost is lost potential for better returns with moderate management.  Base annual return is estimated value under status quo for unmanaged area in state.  Loss on base annual return is estimated loss to landowners due to underpayments of various forms from loggers and mills.

 

Karl Davies, Consulting Forester
Northampton, MA
July, 1999